How to calculate ‘Income from House Property’ for Income Tax Purposes

Income from House Property covers the rent earned from the House property which is chargeable to tax. Sometimes, the owner may have to pay tax on ‘deemed rent’ in case the property is not let out or vacant. The income from house property would be taxable if it satisfies the following three essential conditions:

The assessee is the owner of that property
The property must consist of house, buildings and/or land.
The property may be used for any purpose except used by the owner for the purpose of running his business or profession.

Steps involved in the Computation of Income from House Property

(1)Computation of Gross Annual Value
(2)Computation of Net annual Value
(3)Computation of Deduction available U/s 24

Basis of computing of Income from House Property:

Income from House property is computed as under :

Gross Annual value **********
Less : Munispal Taxes
(It is deductible when it is born by the owner and actually paid by him during the year. ) (*********)
Net Annual value **********
Less : Deduction U/s 24
(i)Standard Deduction @ 30% ( Section 24(a) (*********)
(ii)Interest on borrowed Capital (Section 24(b) (*********)
Income from House Property **********
Gross Annual Value (GAV)
Why ‘GrossAnnual Value’ is calculated to compute income from house property?
The answer to this is that tax on house property is not on actual rent but on inherent capacity of building to generate income. In other words, how much rent the property can fetch. Through Gross Annual Value, taxable income from house property is calculated.
Gross Annual Value

Gross Annual Value is determined as under:

Step I Find out reasonable expected rent of the property
Step II Find out Actual rent received or receivable ( Note 1 )
Step III Higher of the I or II above
Step IV Find out Loss due to vacancy
Step V Step III minus step IV is the Gross Annual Value

Note 1: Unrealized rent if any has to be deducted from rent received or receivable
If certain conditions are fulfilled.

Net Annual Value

Gross Annual Value minus Municipal taxes like property tax, paid by the owner.

Deductions from House Property

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